German carmakers concerned US could damage international trade

NEW YORK – Volkswagen’s (VOWG_p.DE) Chief Executive and Germany’s auto industry association VDA expressed concerns that the election of Donald Trump as United States President could have negative impacts for their companies.

Over the past year, Donald Trump has threatened to impose tariffs on imports of cars from Mexico to protect factory jobs in the United States, potentially forcing German carmakers to rethink heavy investments to expand car factories in Mexico.

VDA, which represents carmakers and suppliers including BMW, Volkswagen (VOWG_p.DE) and its subsidiaries Porsche and Audi and Mercedes-Benz parent Daimler, warned against increased protectionism by the next president.

“It is to be feared that the United States under a new President, just like China, will mainly focus on their own economies, at the expense of international trade flows and relationships,” VDA said in a statement on Wednesday.

The European automotive stocks index fell 2.6 percent by 1057 GMT, underperforming the wider European stocks index, which was down 0.5 percent.

In recent years, German carmakers have expanded their factories in the United States, which remains the world’s largest market for premium vehicles, but also invested heavily to build plants in lower-cost Mexico, a location which currently enjoys tariff-free exports of cars to the United States.

By 2020, Mexico will have the capacity to build one in every four vehicles in North America, up from one in six in 2012, according to market research firm IHS.

After Ford announced that all of the company’s small-car production would be leaving U.S. plants and heading to Mexico, Trump vowed to pressure the automaker to reverse course if elected. “We shouldn’t allow it to happen,” Trump said.

In June, Germany’s BMW broke ground on a new plant in San Luis Potosi, Mexico, pledging to invest a total of $2.2 billion in the region through 2019. The plant is slated to make 150,000 cars a year.

In September, Audi inaugurated a new $1.3 billion plant to build up to 150,000 vehicles in San Jose Chiapa, near the city of Puebla. Audi will build electric and petrol versions of its Q5 offroader in Mexico.

Daimler last year said it will begin producing Mercedes-Benz vehicles in Mexico starting in 2018 at a $1 billion facility it is building together with Renault-Nissan.

“Rhetoric around Mexican production, trade tariffs and a potential step-back in consumer confidence will likely weigh on stocks and auto demand, respectively,” analysts at Evercore ISI said in a note on Wednesday.

Speaking at a conference in Munich, VW Chief Executive Matthias Mueller said he hoped the election of Trump did not prove “more detrimental” to Volkswagen, as it tries to reach a civil settlement with the Department Of Justice (DOJ). –Reuters